The budget deficit for fiscal 2011 has shrunk to $1.28 trillion from the previous year’s shortfall of $1.29 trillion, but at 8.5 percent of the gross domestic product it will be the third-largest deficit, as a share of the economy, of the previous 65 years, according to the Congressional Budget Office.

“The deficit that CBO projects for 2011 is lower than what the agency estimated in March,” the CBO said in its updated budget and economic outlook released Wednesday. “Nevertheless, this year’s shortfall — at 8.5 percent of GDP — will still be much larger than the average annual deficit of 2.8 percent experienced over the past 40 years.”

Democrats and Republicans both saw fodder in the report to tout their own agendas and were quick to point out perceived shortcomings in the other’s policies.

“This analysis reveals two productive trends, reduced long-term deficits and gains in economic growth, but neither is as robust as is needed to get our economy going again,” said Sen. Charles Schumer (N.Y.), who heads the Senate Democrats’ policy and communications operation. “This makes the case for immediate jobs measures to boost growth and for ending tax breaks for millionaires in order to keep us on the path towards a balanced budget. It’s clear from this report that the Republican approach to the economy is harmful to both growth and deficit reduction and is holding back the recovery.”

Senate Democrats believe that the tax burden on upper income earners should be raised to reduce the deficit because high earners have been the main beneficiaries under tax policies first enacted during the administration of President George W. Bush.

Republicans have resisted any effort to raise taxes, arguing that it would, among other things, hurt small-business owners. Instead, the GOP has focused on cutting spending and is pushing to change how the social safety net for the elderly and the poor is structured.

“While the spending cuts made in recent months have resulted in some limited improvement in our fiscal outlook, President Obama’s policies are continuing to make it harder for the private sector to create jobs, and that’s continuing to make it harder to balance the federal budget,” Speaker John Boehner (R-Ohio) said. “The CBO update is further confirmation of the need for the president to abandon his reliance on short-term fixes and ‘stimulus’ spending gimmicks, and work with us to remove government barriers that are standing in the way of long-term job growth.”

The fiscal 2011 budget deficit “reflects a difference between federal revenues that are much lower than average and federal outlays that are much higher than average,” the CBO said.

According to the CBO’s estimates, revenues this year will amount to 15.3 percent of GDP, compared with an average of 18.0 percent over the past 40 years, and outlays will amount to 23.8 percent of GDP, above their 40-year average of 20.8 percent.

The budget office attributed the gap between revenues and outlays to a combination of factors, including an imbalance between revenues and spending that predated the previous recession, which ended in June 2009; sharply lower revenues and elevated spending associated with the severe drop in economic activity; and the costs of various federal policies implemented in response to those conditions.

Over the coming decade, “CBO’s baseline estimates, which are predicated on the assumption that current law remains unchanged, show deficits falling markedly as a percentage of GDP over the next few years — to 3.2 percent by 2013. From 2014 through 2021, deficits under current law will range between 1.0 percent and 1.6 percent of GDP.”

Those projections assume that all the savings included in the deal to raise the debt ceiling come to pass, that the 2001 and 2003 tax cuts extended last year expire on schedule at the end of next year, and that cuts to Medicare physicians occur.

If the tax cuts were extended, the alternative minimum tax was indexed for inflation and cuts to Medicare’s payment rates for physicians’ services were prevented, then annual deficits from 2012 through 2021 would average 4.3 percent of GDP, compared with 1.8 percent in the CBO’s baseline projections, the budget office said.

Using economic data available through early July, when the agency initially completed its economic forecast, the CBO projects that real GDP will increase by 2.3 percent this year and 2.7 percent next year.

The CBO also projects that the jobless rate, which hit 9.1 percent in July, will fall to 8.9 percent by the end of this year but remain above 8 percent until 2014.